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When Should Companies Change their Ethical Norms? - Ideas for Leaders
Idea #812

When Should Companies Change their Ethical Norms?

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KEY CONCEPT

Ethical norms, including rules, policies and procedures, ensure that companies live up to their ethical values. The magnitude of the impact and other characteristics of an ethical issue, combined with conditions that define the responsibility of a company to address the issue, provide a framework for deciding when new ethical norms are required. 


IDEA SUMMARY

Building on his own research, and other studies and theories developed by researchers in the field of ethics and morality, RSM professor Muel Kaptein offers a framework that answers the question: when should companies change their ethical norms.

Ethical norms are the rules, policies and procedures of a company put in place to ensure the company and its people behave in a way that aligns with the company’s value. Thus, if employee health and well-being is a company value, it will implement a rule that prohibits smoking on the premises.

As a new ethical issue arises, a company must decide whether the issue warrants introducing new ethical norms. Two major factors impact the decision: the more an ethical issue threatens the values of the company, and the higher the responsibility of the company to address the issue, the greater the desirability of a new norm.

Whether or not an ethical issue threatens the values of a company depends on the characteristics of the ethical issue, including:

Magnitude of the consequences. Does an action represent a major threat to the company’s values? When a company is paying suppliers later and later to the point of putting them in serious financial difficulty, its actions represent a major threat to the company’s value of ‘fairness’.

Increase in moral certainty. Does the ethical issue concern an area that, by consensus, society judges to involve good vs. evil? The norm for international companies in the past was to avoid involvement in local politics; increasing societal concern about global human rights issues led them to introduce new norms. 

Increase in probability of effect. The higher the probability of an ethical issue arising and causing the damage feared, the higher the need for a new ethical norm. 

Increase in temporal immediacy. When an ethical issue arising in the near future threatens a value, a new norm is warranted. When the threat is in the distant future, a new norm is not necessarily called for as circumstances may change between now and then. 

Increase in proximity. Moral proximity (or nearness) can be physical, but also social, cultural and psychological. Hard drugs is an issue that impacts society in general; when it impacts the company’s customers and/or employees, the company will want to take a stand (through norms including employee drug-testing).  

Increase in the concentration of effect. An ethical issue that impacts a small percentage of a group is seen as a greater threat to a company’s values. For example, behaviour that unethically favours one client company, such as giving advantageous deals, and not any other client company calls for a new norm.

The second factor that impacts whether a company should new norms is related to whether the company has a responsibility to protect its values from an issue that threatens those values. The level of responsibility depends on four conditions:

Increase in causality. Is the company causing the issue? A company’s sales force increasingly giving gifts to clients, making clients feel as if they are being manipulated. Company employees have caused the ethical issue, and the company is thus responsible for resolving the issue to live up to its value of ‘fair competition’.

Increase in freedom. Does the company have any control over the issue? The more freedom a company has to respond to the issue, the greater its responsibility to do so. Since a larger company can put more pressure on suppliers to respect human rights, for example, it has more responsibility to add an appropriate norm (e.g., no business with suppliers violating human rights) than a small company with no leverage on the supplier.

Increase in knowledge. The more a company has the knowledge to prevent an ethical issue from threatening an ethical value, the more responsibility the company has to address the issue. For example, soft drink manufacturers who know their products can cause obesity in children have the responsibility to develop norms (such as avoiding marketing to children) to address the issue.

Increase in deliberation. ‘Deliberation’ refers to a company deliberately emphasizing a value. Companies that position their products as environmentally friendly have the responsibility to set up norms that ensure they are living up to the promise, such as not working with suppliers who engage in activities that endanger the environment.


BUSINESS APPLICATION

The seven characteristics of an ethical issue and the four conditions defining the responsibility of a company to address the issue create a framework that can guide companies on when new ethical norms should be put in place. 

Several additional guidelines can reinforce the ethical standing of a company. For example, a company’s set of business ethics should progress as ethical issues evolve. Greater awareness of sexual harassment led companies to implement norms to address this issue. A major organizational change—expansion into developing countries, for example—may raise ethical issues that require new norms.

This detailed framework can also help a company audit its ethical norms—that is, reviewing its current set of norms and determining, based on the criteria in the framework, whether those norms fully protect the important ethical values of the company. 

A company’s anticipation, vigilance and desire for a timely response to ethical issues increase the value of the framework.


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FURTHER READING

  Muel Kaptein’s profile at Rotterdam School of Management

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Source

Idea conceived

October 26, 2021

Idea posted

Mar 2022
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